What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 178 added, 133 removed, 246 unchanged (56% of the section changed)

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(amounts in millions, except share and per share data, unless otherwise noted)

The following discussion and analysis of the results of operations and financial condition for the three months ended March 31, 2022 and 2021 has been derived from and should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto included in Part I, Item 1 herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our” or “us”).

The following discussion and analysis of the financial condition and results of operations for the three and six months ended June 30, 2022 and 2021 has been derived from and should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto included in Part I, Item 1 herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our” or “us”).

The following discussion and analysis should also be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”).

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GAAP” or “GAAP”).

Any references to the Company’s results in this Item 2 are specifically to our continuing operations only and exclude discontinued operations, unless otherwise noted.

The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”.

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future risks and existing uncertainties associated with adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic, which continues to disrupt our operations including government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers;

uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers;

risks associated with our inability to obtain certain raw materials and components in the current challenging supply chain environment, as well as the risk that the cost of most of the Company’s raw materials and components is increasing;

negative impacts caused by extreme weather conditions and natural catastrophic events, including those caused by climate change and global warming;

risks associated with the improper conduct by any of our employees, customers, suppliers, distributors or any other business partners which could impair our business reputation and financial results and could result in our non-compliance with

anti-corruption laws and regulations of the U.S.

uncertainties associated with an economic slowdown or recession that could negatively affect the financial condition of our customers and could result in reduced demand;

risks associated with our inability to obtain certain raw materials and components in the current challenging supply chain environment, as well as inflationary risks, including the risk that the cost of certain of the Company’s raw materials and components is increasing;

negative impacts caused by extreme weather conditions and natural catastrophic events,

including those caused by climate change and global warming;

government and various foreign jurisdictions;

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cybersecurity threats, including but not limited to malware, phishing, credential harvesting, ransomware and other increasingly sophisticated attacks, that could impair our information technology systems and could disrupt business operations, result in the loss of or inability to access confidential information and critical business, financial or other data, and/or cause the release of highly sensitive confidential information, any of which could adversely impact our reputation and operating results and potentially lead to litigation and/or governmental investigations and fines;

government contracting risks that the Company may be subject to, including laws and regulations governing performance of government contracts and related risks associated with conducting business with the U.S.

government contracting risks that the Company may be subject to, including laws and regulations governing reporting obligations, performance of government contracts and related risks associated with conducting business with the U.S.

and other foreign governments or their suppliers (both directly and indirectly);

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The COVID-19 pandemic caused widespread disruptions to our Company during the first half of 2020, and to a lesser extent, those disruptions continued throughout the remainder of 2020, all of 2021 and into 2022.

As of March 31, 2022, we continue to experience some disruptions, and at a minimum, we expect disruptions to continue for the remainder of 2022 and potentially beyond.

As of June 30, 2022, we continue to experience some disruptions, and at a minimum, we expect disruptions to continue for the remainder of 2022 and potentially beyond.

These disruptions have included and may continue to include government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers.

More recently, during the first quarter of 2022, COVID-19 outbreaks in China have resulted in new government-imposed lockdowns in certain regions, which have impacted the ability of several of our operations and manufacturing facilities to operate in the ordinary course .

The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the impact of any additional resurgences from known or new variants, current and future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.

More recently, during most of the first half of 2022, COVID-19 outbreaks in China resulted in new government-imposed lockdowns in certain regions, which impacted the ability of several of our operations and manufacturing facilities to operate in the ordinary course .

the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.

In addition, the COVID-19 pandemic could impact the health of our management team and other employees.

There can be no assurance that the COVID-19 pandemic will not have a

material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future.

There can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future.

New Reportable Business Segments

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This new alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future.

The Company has begun reporting under its new reportable segments in connection with this Quarterly Report on Form 10-Q, which also includes the recasting of relevant prior year period segment information in order to enable year-over-year segment comparisons.

The Company began reporting under its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

As part of this Quarterly Report on Form 10-Q, the Company has included the recasting of relevant prior year period segment information in order to enable year-over-year segment comparisons.

Refer to Note 13 o f the Notes to Condensed Consolidated Financial Statements, as well as the 2021 Annual Report, for further details related to the Company’s change in its reportable business segments effective January 1, 2022.

Results of Operations

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

Net sales were $2,951.9 in the first quarter of 2022 compared to $2,377.1 in the first quarter of 2021, which represented an increase of 24% in U.S.

Three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021

Net sales were $3,136.8 in the second quarter of 2022 compared to $2,653.9 in the second quarter of 2021, which represented an increase of 18% in U.S.

dollars, 21% in constant currencies and 18% organically, over the respective prior year period.

The increase in net sales was driven by robust growth across all three reportable business segments, as described below.

From a market standpoint, the increase in net sales was driven by strong organic growth across several markets, including the information technology and data communications, industrial, automotive, broadband communications, and commercial aerospace markets, as well as moderate growth in the mobile networks and mobile devices markets, along with contributions from the Company’s acquisition program.

Net sales in the Harsh Environment Solutions segment (approximately 25% of net sales) in the first quarter of 2022 increased 16% in U.S.

dollars, 17% in constant currencies and 16% organically, compared to the first quarter of 2021.

The increase in the first quarter of 2022 was driven primarily by strong organic growth in the industrial, automotive and commercial aerospace markets.

Net sales in the Communications Solutions segment (approximately 45% of net sales) in the first quarter of 2022 increased 28% in U.S.

dollars, 29% in constant currencies and 21% organically, compared to the first quarter of 2021.

The increase in the first quarter of 2022 was driven by strong organic growth across several markets, including the information technology and data communications, automotive, industrial, mobile networks and broadband communications markets, as well as moderate growth in the mobile devices market, along with contributions from the Company’s acquisition program.

Net sales in the Interconnect and Sensor Systems segment (approximately 30% of net sales) in the first quarter of 2022 increased 25% in U.S.

dollars, 28% in constant currencies and 13% organically, compared to the first quarter of 2021.

The increase in the first quarter of 2022 was driven primarily by strong organic growth in the industrial, automotive, and information technology and data communications markets, along with contributions from the Company’s acquisition program.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S.

GAAP financial measures, by segment, geography and consolidated, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:

Net sales were $6,088.6 in the first six months of 2022 compared to $5,031.0 in the first six months of 2021, which represented an increase of 21% in U.S.

dollars, 23% in constant currencies and 18% organically, over the respective prior year period.

The increases in net sales in the second quarter and first six months of 2022 were driven by robust growth across all three reportable business segments, as described below.

From a market standpoint, the increases in net sales were driven by double-digit organic growth across several markets, including the automotive, information technology and data communications, industrial, broadband communications, and commercial aerospace markets and moderate growth in the mobile devices and mobile networks markets, along with contributions from the Company’s acquisition program.

Net sales in the Harsh Environment Solutions segment (approximately 25% of net sales) in the second quarter of 2022 increased 14% in U.S.

dollars, 17% in constant currencies and 16% organically, compared to the second quarter of 2021.

Net sales in the Harsh Environment Solutions segment in the first six months of 2022 increased 15% in U.S.

dollars, 17% in constant currencies and 16% organically, compared to the first six months of 2021.

The increases in the second quarter and first six months of 2022 were driven primarily by strong organic growth in the industrial, automotive,

and commercial aerospace markets and moderate growth in the information technology and data communications market, partially offset by a decline in the mobile networks market.

Net sales in the Communications Solutions segment (approximately 44% of net sales) in the second quarter of 2022 increased 24% in U.S.

dollars, 25% in constant currencies and 19% organically, compared to the second quarter of 2021.

Net sales in the Communications Solutions segment in the first six months of 2022 increased 26% in U.S.

dollars, 27% in constant currencies and 20% organically, compared to the first six months of 2021.

The increases in the second quarter and first six months of 2022 were driven by strong organic growth across several markets, including the information technology and data communications, automotive, broadband communications, industrial, and mobile networks markets, moderate growth in the mobile devices market, and contributions from the Company’s acquisition program.

Net sales in the Interconnect and Sensor Systems segment (approximately 31% of net sales) in the second quarter of 2022 increased 15% in U.S.

dollars, 20% in constant currencies and 19% organically, compared to the second quarter of 2021.

The increase in the second quarter of 2022 was driven primarily by strong organic growth in the automotive and information technology and data communications markets, along with moderate growth in the industrial and military markets.

Net sales in the Interconnect and Sensor Systems segment in the first six months of 2022 increased 20% in U.S.

dollars, 23% in constant currencies and 16% organically, compared to the first six months of 2021.

The increase in the first six months of 2022 was driven primarily by strong organic growth in the automotive, information technology and data communications, and industrial markets, along with contributions from the Company’s acquisition program, partially offset by a decline in the mobile networks market.

The tables below reconcile Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S.

GAAP financial measures, by segment, geography and consolidated, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021:

Percentage Growth (relative to same prior year period) (1)

Sales Growth (4)

Three Months Ended March 31,

Three Months Ended June 30,

Net sales by:

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United States

Six Months Ended June 30,

Net sales by:

Harsh Environment Solutions

Communications Solutions

Interconnect and Sensor Systems

Geography (6) :

United States

(1) Percentages in this table were calculated using actual, unrounded results;

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The comparatively stronger U.S.

dollar for the first quarter of 2022 had the effect of decreasing sales by approximately $27.8, relative to the comparable period in 2021.

Selling, general and administrative expenses increased to $336.8, or 11.4% of net sales, for the first quarter of 2022, compared to $262.7, or 11.1% of net sales, for the first quarter of 2021.

The increase in selling, general and administrative expenses as a percentage of net sales in the first quarter of 2022 is primarily driven by the impact of several of the 2021 acquisitions, and in particular Halo and the MTS Sensors business, having higher selling, general and administrative expenses as a percentage of net sales compared to the average of the Company, partially offset by higher sales during the first three months of 2022, relative to the comparable period of 2021.

Administrative expenses represented approximately 4.5% of net sales for the first quarter of 2022, and represented approximately 4.3% o f net sales for the first quarter of 2021.

Research and development expenses represented approximately 2.8% of net sales for the first quarter of 2022, and represented approximately 3.1% of net sales for the first quarter of 2021.

Selling and marketing expenses represented approximately 4.1% of net sales for the first quarter of 2022, and represented approximately 3.7% of net sales for the first quarter of 2021.

Operating income was $589.8, or 20.0% of net sales, for the first quarter of 2022, compared to $464.8, or 19.6% of net sales, for the first quarter of 2021.

The increase in Operating income and operating margin for the first quarter of

2022 relative to the comparable period in 2021 was primarily driven by normal operating leverage on the higher sales volumes combined with the benefit of ongoing pricing and cost actions, which was partially offset by the continued impact of the more challenging commodity, logistics and supply chain environment.

Operating income for the Harsh Environment Solutions segment for the first quarter of 2022 was $183.2, or 25.2% of net sales, compared to $158.3, or 25.2% of net sales, for the first quarter of 2021.

The operating margin for the Harsh Environment Solutions segment for the first quarter of 2022 was flat relative to the comparable period in 2021, as the normal operating leverage on the higher sales volumes was offset by the continued impact of the more challenging commodity, logistics and supply chain environment.

Operating income for the Communications Solutions segment for the first quarter of 2022 was $282.5, or 21.4% of net sales, compared to $204.5, or 19.9% of net sales, for the first quarter of 2021.

The increase in operating margin for the Communications Solutions segment for the first quarter of 2022 relative to the comparable period in 2021 was primarily driven by normal operating leverage on the higher sales volumes.

Operating income for the Interconnect and Sensor Systems segment for the first quarter of 2022 was $160.0, or 17.7% of net sales, compared to $135.1, or 18.7% of net sales, for the first quarter of 2021.

The decrease in operating margin for the Interconnect and Sensor Systems segment for the first quarter of 2022 relative to the comparable period in 2021 was primarily driven by the impact of the Company’s 2021 acquisitions, in particular the MTS Sensors business, which currently operates at a lower operating margin compared to the average of the Interconnect and Sensor Systems segment, which was partially offset by normal operating leverage on the higher sales volumes.

Interest expense for the first quarter of 2022 was $28.1, compared to $28.6 for the first quarter of 2021.

dollar for the second quarter of 2022 had the effect of decreasing sales by approximately $82.7, relative to the comparable period in 2021.

The comparatively stronger U.S.

dollar for the first six months of 2022 had the effect of decreasing sales by approximately $110.5, relative to the comparable period in 2021.

Selling, general and administrative expenses increased to $355.4, or 11.3% of net sales, and $692.1, or 11.4% of net sales, for the second quarter and first six months of 2022, respectively, compared to $311.6, or 11.7% of net sales, and $574.3, or 11.4% of net sales, for the second quarter and first six months of 2021, respectively.

The decrease in selling, general and administrative expenses as a percentage of net sales in the second quarter of 2022 is primarily driven by higher sales during the second quarter of 2022, relative to the comparable period of 2021.

Administrative expenses represented approximately 4.7% and 4.6% of net sales for the second quarter and first six months of 2022, respectively, and represented approximately 4.6% and 4.4% of net sales for the second quarter and first six months of 2021, respectively.

Research and development expenses represented approximately 2.6% and 2.7% of net sales for the second quarter and first six months of 2022, respectively, and represented approximately 3.1% of net sales for both the second

quarter and first six months of 2021.

Selling and marketing expenses represented approximately 4.0% and 4.1% of net sales for the second quarter and first six months of 2022, respectively, and represented approximately 4.1% and 3.9% of net sales for the second quarter and first six months of 2021, respectively.

Operating income was $648.8, or 20.7% of net sales, and $1,238.6, or 20.3% of net sales, for the second quarter and first six months of 2022, respectively, compared to $476.2, or 17.9% of net sales, and $941.0, or 18.7% of net sales, for the second quarter and first six months of 2021, respectively.

Operating income for the second quarter and first six months of 2021 included $55.4 of acquisition-related expenses (separately presented in the Condensed Consolidated Statements of Income) primarily comprised of transaction, severance, restructuring and certain non-cash costs related to the acquisition of MTS Systems Corporation (“MTS”).

For the three and six months ended June 30, 2021, the acquisition-related expenses had the effect of decreasing net income from continuing operations by $44.6, or $0.07 per share.

Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $531.6, or 20.0% of net sales, and $996.4, or 19.8% of net sales, for the three and six months ended June 30, 2021, respectively.

The increases in Adjusted Operating Income and Adjusted Operating Margin for the second quarter and first six months of 2022 relative to the comparable periods in 2021 were primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of ongoing pricing actions, partially offset by the continued impact of the more challenging cost environment.

Operating income for the Harsh Environment Solutions segment for the second quarter and first six months of 2022 was $206.5, or 26.1% of net sales, and $389.7, or 25.7% of net sales, respectively, compared to $181.0, or 26.0% of net sales, and $339.3, or 25.6% of net sales, for the second quarter and first six months of 2021, respectively.

The slight increases in operating margin for the Harsh Environment Solutions segment for the second quarter and first six months of 2022 relative to the comparable periods in 2021 were primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of ongoing pricing actions, largely offset by the continued impact of the more challenging cost environment.

Operating income for the Communications Solutions segment for the second quarter and first six months of 2022 was $303.0, or 22.0% of net sales, and $585.6, or 21.7% of net sales, respectively, compared to $235.1, or 21.1% of net sales, and $439.6, or 20.5% of net sales, for the second quarter and first six months of 2021, respectively.

The increases in operating margin for the Communications Solutions segment for the second quarter and first six months of 2022 relative to the comparable periods in 2021 were primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of ongoing pricing actions, partially offset by the continued impact of the more challenging cost environment.

Operating income for the Interconnect and Sensor Systems segment for the second quarter and first six months of 2022 was $177.5, or 18.3% of net sales, and $337.5, or 18.0% of net sales, respectively, compared to $150.5, or 17.9% of net sales, and $285.5, or 18.3% of net sales, for the second quarter and first six months of 2021, respectively.

The increase in operating margin for the Interconnect and Sensor Systems segment for the second quarter of 2022 relative to the comparable period in 2021 was primarily driven by n ormal operating leverage on the higher sales volumes, combined with the benefit of ongoing pricing actions, partially offset by the continued impact of the more challenging cost environment.

The decrease in operating margin for the Interconnect and Sensor Systems segment for the first six months of 2022 relative to the comparable period in 2021 was primarily driven by the continued impact of the more challenging cost environment along with the impact of the Company’s 2021 acquisitions, in particular the MTS Sensors business which closed in April 2021 and currently operates at a lower operating margin compared to the average of the Interconnect and Sensor Systems segment, all of which was partially offset by normal operating leverage on the higher sales volumes.

Interest expense for the second quarter and first six months of 2022 was $30.5 and $58.6, respectively, compared to $29.1 and $57.7 for the second quarter and first six months of 2021, respectively.

Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further information related to the Company’s debt.

Provision for income taxes for the first quarter of 2022 was at an effective tax rate of 23.8%, compared to 23.9% for the first quarter of 2021.

For the first quarter of 2022 and 2021, the excess tax benefits resulting from stock option exercise activity had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below.

Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 2, for the three months ended March 31, 2022 and 2021 was 24.5% for both periods, as reconciled in the table below to the comparable effective tax rate based on GAAP results.

Provision for income taxes for the second quarter and first six months of 2022 was at an effective tax rate of 23.3% and 23.5%, respectively.

Provision for income taxes for the second quarter and first six months of 2021 was at an

effective tax rate of 17.5% and 20.6%, respectively.

For the second quarter and first six months of 2022 and 2021, the excess tax benefits resulting from stock option exercise activity had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the tables below.

For the second quarter and first six months of 2021, the effective tax rate was further impacted by the tax effect of acquisition-related expenses and the discrete tax benefit related to the settlement of uncertain tax positions in certain non-U.S.

jurisdictions, each of which had the impact on the effective tax rate and earnings per share by the amounts noted in the tables below.

Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 2, for the three and six months ended June 30, 2022 and 2021 was 24.5% for all periods, as reconciled in the tables below to the comparable effective tax rate based on GAAP results.

Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further information related to income taxes.

Net income attributable to Amphenol Corporation and Net income per common share attributable to Amphenol Corporation - Diluted (“Diluted EPS”) were $425.7 and $0.68, respectively, for the first quarter of 2022, compared to $329.6 and $0.53, respectively, for the first quarter of 2021.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 2, were $421.9 and $0.67, respectively, for the first quarter of 2022, compared to $327.0 and $0.52, respectively, for the first quarter of 2021.

The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S.

GAAP financial measures for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net income from continuing operations attributable to Amphenol Corporation and Net income (from continuing operations) per common share attributable to Amphenol Corporation - Diluted (“Diluted EPS”) were $472.5 and $0.76, respectively, for the second quarter of 2022, compared to $367.2 and $0.59, respectively, for the second quarter of 2021.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 2, were $465.0 and $0.75, respectively, for the second quarter of 2022, compared to $377.6 and $0.61, respectively, for the second quarter of 2021.

Net income from continuing operations attributable to Amphenol Corporation and Diluted EPS were $898.2 and $1.44, respectively, for the first six months of 2022, compared to $696.7 and $1.12, respectively, for the first six months of 2021.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS were $886.9 and $1.42, respectively, for the first six months of 2022, compared to $704.4 and $1.13, respectively, for the first six months of 2021.

The following tables reconcile Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income from continuing operations attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all on a continuing operations basis only, as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S.

GAAP financial measures for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Reported (GAAP)

Acquisition-related expenses

Excess tax benefits related to stock-based compensation

Discrete tax item

Adjusted (non-GAAP) (2)

Six Months Ended June 30,

Reported (GAAP)

Acquisition-related expenses

Excess tax benefits related to stock-based compensation

Discrete tax item

Adjusted (non-GAAP) (2)

All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations.

(1) While the terms “operating margin” and “effective tax rate” are not considered U.S.

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Liquidity and Capital Resources

As of March 31, 2022 and December 31, 2021, the Company had cash, cash equivalents and short-term investments of $1,299.6 and $1,241.4, respectively, with the majority of the Company’s cash, cash equivalents and short-term investments on hand located outside of the United States.

The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, the U.S.

Commercial Paper Program, the Euro Commercial Paper Program, and the Revolving Credit Facility (each as defined and discussed further below within this Item 2).

On April 19, 2022, the Company entered into a two-year, $750.0 unsecured delayed draw loan credit agreement (“2022 Term Loan”), any future proceeds of which are expected to be used for general corporate purposes.

The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash from operating activities, availability under each of its Revolving Credit Facility and recent 2022 Term Loan, and access to capital markets, provide adequate liquidity to meet both its short-term (next twelve months) and reasonably foreseeable long-term requirements and obligations.

As of June 30, 2022 and December 31, 2021, the Company had cash, cash equivalents and short-term investments of $1,334.4 and $1,241.4, respectively, with the majority of the Company’s cash, cash equivalents and short-term investments on hand located outside of the United States.

The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, as well as availability under the U.S.

Commercial Paper Program, the Euro Commercial Paper Program, the Revolving Credit Facility, and the recently executed two-year, $750.0 unsecured delayed draw loan credit agreement (“2022 Term Loan”) (all of which are defined and discussed further below within this Item 2).

The Company believes that these sources of liquidity, along with access to capital markets, provide adequate liquidity to meet both its short-term (next twelve months) and reasonably foreseeable long-term requirements and obligations.

The Company’s primary ongoing cash requirements will be for operating and working capital needs, capital expenditures, product development activities, repurchases of our Common Stock, dividends, debt service, payments associated with the one-time tax on the deemed repatriation of all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”), which is payable in annual installments until 2025, taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings), funding of pension obligations, and other contractual obligations and commitments included in Item 7 of the 2021 Annual Report.

The Company may also use cash to fund all or part of the cost of future acquisitions.

The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as defined below) as well as the recent 2022 Term Loan.

Following the enactment of the U.S.

Tax Cuts and Jobs Act of 2017 (the “Tax Act”) in December 2017, the Company indicated an intention to repatriate most of its pre-2022 accumulated earnings and has accrued the foreign and U.S.

The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility, Commercial Paper Programs and the recent 2022 Term Loan (all as defined below).

The Company has previously indicated an intention to repatriate most of its pre-2022 accumulated earnings and has accrued the foreign and U.S.

state and local taxes, if applicable, on those earnings, as appropriate.

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The Company intends to indefinitely reinvest the remaining pre-2022 foreign earnings.

As of March 31, 2022, the Company has accrued the foreign and U.S.

As of June 30, 2022, the Company has accrued the foreign and U.S.

state and local taxes associated with the foreign earnings that we intend to repatriate.

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Cash Flow Summary

The following table summarizes the Company’s cash flows from operating, investing and financing activities for the three months ended March 31, 2022 and 2021, as reflected in the Condensed Consolidated Statements of Cash Flow:

Three Months Ended March 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

The following table summarizes the Company’s cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021, as reflected in the Condensed Consolidated Statements of Cash Flow:

Six Months Ended June 30,

Net cash provided by operating activities from continuing operations

Net cash used in investing activities from continuing operations

Net cash (used in) provided by financing activities from continuing operations

Net cash change from discontinued operations

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths.

Net cash provided by operating activities (“Operating Cash Flow”) was $ 350.8 in the first three months of 2022 compared to $321.0 in the first three months of 2021.

The increase in Operating Cash Flow for the first three months of 2022 compared to the first three months of 2021 is primarily due to the increase in net income, partially offset by a higher usage of cash related to the change in working capital.

In the first three months of 2022, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $182.9, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in inventories of $113.8 and prepaid expenses and other current assets of $30.4, along with decreases in accounts payable of $36.3 and accrued liabilities, including income taxes, of $29.9, partially offset by a decrease in accounts receivable of $27.5 .

In the first three months of 2021, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $114.6, excluding the impact of acquisitions and foreign currency translation, due to an increase in inventories of $85.7 and decreases in accounts payable of $52.6 and accrued liabilities, including income taxes, of $16.4, partially offset by decreases in accounts receivable of $32.1 and prepaid expenses and other current assets of $8.0.

The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at March 31, 2022 as compared to December 31, 2021.

Accounts receivable decreased $ 32.7 to $2,422.1, primarily due to slightly lower sales in the first quarter of 2022 relative to the fourth quarter of 2021, along with the effect of translation from exchange rate changes (“Translation”) at March 31, 2022 compared to December 31, 2021.

Days sales outstanding at March 31, 2022 and December 31, 2021 were 74 days and 71 days, respectively.

Inventories increased $ 95.6 to $1,989 .7, which was primarily driven by the impact of the ongoing supply chain disruptions that we continued to experience during the first three months of 2022, partially offset by Translation.

Inventory days at March 31, 2022 and December 31, 2021 were 88 days and 80 days, respectively.

Prepaid expenses and other current assets increased $29.4 to $397.3, primarily due to increases in various prepaid expenses.

Property, plant and equipment, net, decreased $ 0.3 to $1,175.0, as depreciation of $71.7 and Translation were offset by capital expenditures of $78.1.

Goodwill decreased $27.7 to $6,349.1, primarily as a result of Translation.

Other intangible assets, net decreased $18.5 to $738.4, primarily due to amortization associated with the Company’s intangible assets.

Other long-term assets increased $91.2 to $502.4, primarily due to the purchase of long-term certificates of deposit investments, along with an increase in operating lease right-of-use assets resulting from new and renewed lease agreements entered into during the first three months of 2022.

Accounts payable decreased $36.1 to $1,275.9, primarily due to decreased purchasing activity related to lower sales levels in the first quarter of 2022 relative to the fourth quarter of 2021.

Payable days at March 31, 2022 and December 31, 2021 were 57 days and 56 days, respectively.

Total accrued expenses, including accrued income taxes, decreased $33.5 to $1,097.6, primarily as a result of a decrease in accrued salaries, wages and employee benefits, which was partially offset by increases in accrued income taxes and other accrued expenses.

Net cash provided by operating activities from continuing operations (“Operating Cash Flow”) was $ 893.3 in the first six months of 2022 compared to $732.0 in the first six months of 2021.

The increase in Operating Cash Flow for the first six months of 2022 compared to the first six months of 2021 is primarily due to the increase in net income from continuing operations, partially offset by a higher usage of cash related to the change in working capital.

In the first six months of 2022, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $229.3, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in inventories of $218.8 and accounts receivable of $194.0, partially offset by increases in accounts payable of $104.8 and accrued liabilities, including income taxes, of $48.7, and a decrease in prepaid expenses and other current assets of $30.0 .

In the first six months of 2021, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $194.9, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in inventories of $165.4, accounts receivable of $42.4 and prepaid expenses and other current assets of $15.0 and a decrease in accrued liabilities, including income taxes, of $24.6, partially offset by an increase in accounts payable of $52.5.

The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at June 30, 2022 as compared to December 31, 2021.

Accounts receivable increased $ 116.8 to $2,571.6, primarily due to slightly higher sales in the second quarter of 2022 relative to the fourth quarter of 2021, along with the impact of one acquisition that closed during the second quarter of 2022 (the “2022 Acquisition”), partially offset by the effect of translation from exchange rate changes (“Translation”) at June 30, 2022 compared to December 31, 2021.

Days sales outstanding at June 30, 2022 and December 31, 2021 were 72 days and 71 days, respectively.

Inventories increased $ 149.6 to $2,043 .7, which was primarily driven by the impact of the ongoing supply chain disruptions that we continued to experience during the first six months of 2022, along with the impacts of higher sales and the 2022 Acquisition, partially offset by Translation.

Inventory days at June 30, 2022 and December 31, 2021

were 86 days and 80 days, respectively.

Property, plant and equipment, net, decreased $ 20.2 to $1,155.1, primarily due to depreciation of $144.2 and Translation, partially offset by capital expenditures of $169.2.

Goodwill decreased $101.8 to $6,275.0, primarily driven by Translation, partially offset by goodwill recorded resulting from the 2022 Acquisition.

Other intangible assets, net decreased $5.7 to $751.2, primarily due to amortization associated with the Company’s current intangible assets along with the effect of Translation, partially offset by the recognition of certain intangible assets related to recent acquisitions.

Other long-term assets increased $82.6 to $493.8, primarily due to the purchase of long-term certificates of deposit investments, along with an increase in operating lease right-of-use assets resulting from new and renewed lease agreements entered into during the first six months of 2022.

Accounts payable increased $60.9 to $1,372.9, primarily due to increased purchasing activity related to higher sales levels in the second quarter of 2022 relative to the fourth quarter of 2021, along with the effect of the 2022 Acquisition, partially offset by Translation.

Payable days at June 30, 2022 and December 31, 2021 were 58 days and 56 days, respectively.

Total accrued expenses, including accrued income taxes, increased $48.6 to $1,179.7, primarily as a result of increases in accrued income taxes and other accrued expenses, partially offset by a decrease in accrued salaries, wages and employee benefits and Translation.

Accrued pension and postretirement benefit obligations decreased $17.4 to $176.0, primarily due to Translation.

There is no current requirement for cash contributions to any of the Company’s defined benefit pension plans in the U.S., and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the pension plans’ assets, the timing and amount of cash contributions in the future, if any, as discussed in more detail in Note 10 of the Notes to Condensed Consolidated Financial Statements.

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The following table reconciles Free Cash Flow to its most directly comparable U.S.

GAAP financial measure for the three months ended March 31, 2022 and 2021.

The increase in Free Cash Flow was driven by an increase in Operating Cash Flow, as described above.

Three Months Ended March 31,

GAAP financial measure for the six months ended June 30, 2022 and 2021.

The increase in Free Cash Flow was driven by an increase in Operating Cash Flow, as described above, and to a lesser extent, a decrease in capital expenditures.

The following table is on a continuing operations basis only and excludes any cash flows related to discontinued operations:

Six Months Ended June 30,

Operating Cash Flow (GAAP)

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Cash flows from investing activities consist primarily of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment, net purchases (sales and maturities) of short- and long-term investments, and acquisitions.

Net cash used in investing activities was $144.1 in the first quarter of 2022, compared to $263.2 in the first quarter of 2021.

In the first quarter of 2022, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of $76.3, purchases of long-term investments of $55.9, and net purchases of short-term investments of $8.6.

In the first quarter of 2021, net cash used in investing activities was driven primarily by the use of $185.6 to fund acquisitions and capital expenditures (net of disposals) of $77.5, partially offset by net sales and maturities of short-term investments of $2.3.

Net cash used in investing activities from continuing operations was $377.3 in the first six months of 2022, compared to $1,721.3 in the first six months of 2021.

In the first six months of 2022, net cash used in investing activities from continuing operations was driven primarily by capital expenditures (net of disposals) of $166.4, net purchases of short-term investments of $80.2, the use of $74.5 to fund acquisitions, and net purchases of long-term investments of $55.7.

In the first six months of 2021, net cash used in investing activities from continuing operations was driven primarily by the use of $1,531.0 to fund acquisitions and capital expenditures (net of disposals) of $181.7, partially offset by net sales and maturities of short-term investments of $2.6.

Financing Activities

Cash flows from financing activities consist primarily of cash flows associated with borrowings and repayments of the Company’s credit facilities and other long-term debt, repurchases of Common Stock, proceeds from stock option exercises, dividend payments, and distributions to and purchases of noncontrolling interests.

Net cash used in financing activities was $151.2 in the first quarter of 2022, compared to net cash provided by financing activities of $586.2 in the first quarter of 2021.

For the first quarter of 2022, net cash used in financing activities was driven primarily by (i) repurchases of the Company’s Common Stock of $204.0, (ii) dividend payments of $119.8, (iii) distributions to and purchases of noncontrolling interests of $3.6, and (iv) repayments of $2.5 related to other long-term debt, partially offset by (a) net borrowings of $138.4 primarily under the U.S.

Net cash used in financing activities from continuing operations was $439.1 in the first six months of 2022, compared to net cash provided by financing activities from continuing operations of $613.0 in the first six months of 2021.

For the first six months of 2022, net cash used in financing activities from continuing operations was driven primarily by (i) repurchases of the Company’s Common Stock of $389.9, (ii) dividend payments of $239.3, (iii) repayments of $20.1 related to short-term debt, (iv) repayments of $4.9 related to long-term debt, and (v) distributions to and purchases of noncontrolling interests of $4.0, partially offset by (a) net borrowings of $130.7 primarily under the U.S.

Commercial Paper Program, (b) proceeds of $46.6 primarily related to short-term borrowings, and (c) cash proceeds of $42.2 from the exercise of stock options.

For the first quarter of 2021, net cash provided by financing activities was driven primarily by (i) net borrowings of $813.1 comprised primarily of borrowings under the U.S.

Commercial Paper Program in anticipation of the closing of the MTS acquisition and (ii) cash proceeds of $21.1 from the exercise of stock options, partially offset by (a) repurchases of the Company’s Common Stock of $152.8, (b) dividend payments of $86.8, (c) distributions to and purchases of noncontrolling interests of $7.6, and (d) repayments of $0.8 related to other long-term debt.

For the first six months of 2021, net cash provided by financing activities from continuing operations was driven primarily by (i) net borrowings of $1,402.7 comprised primarily of borrowings under the U.S.

Commercial Paper Program, most of the proceeds of which were used for the MTS acquisition and (ii) cash proceeds of $103.3 from the exercise of stock options, partially offset by (a) debt repayments of $387.1, primarily related to the repayment of the then-outstanding MTS senior notes, (b) repurchases of the Company’s Common Stock of $320.1, (c) dividend payments of $173.4, (d) distributions to and purchases of noncontrolling interests of $8.3, and (e) payments of $4.1 associated with the deferred purchase price related to acquisitions.

The Company has significant flexibility to meet its financial commitments.

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The Company may utilize the Revolving Credit Facility for general corporate purposes.

As of March 31, 2022 and December 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

As of June 30, 2022 and December 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants.

On March 31, 2022, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

On June 30, 2022, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

On April 19, 2022, the Company entered into a two-year, $750.0 unsecured delayed draw term loan credit agreement (the “2022 Term Loan”), which is scheduled to mature on April 19, 2024.

The 2022 Term Loan was undrawn at closing and may be drawn on up to five occasions over the life of the facility.

The 2022 Term Loan may be repaid at any time without premium or penalty, and, once prepaid, cannot be reborrowed.

The proceeds from the 2022 Term Loan are expected to be used for general corporate purposes.

The 2022 Term Loan may be repaid at any time without premium or penalty, and, once repaid, cannot be reborrowed.

When drawn upon, the proceeds from the 2022 Term Loan are expected to be used for general corporate purposes.

Interest rates under the 2022 Term Loan are based on a spread over either the base rate or the adjusted term SOFR, which spread varies based on the Company’s debt rating.

As of June 30, 2022, there were no outstanding borrowings under the 2022 Term Loan.

The 2022 Term Loan requires payment of certain commitment fees and requires that the Company satisfy certain financial covenants, which financial covenants are the same as those under the Revolving Credit Facility.

As of April 26, 2022, there were no outstanding borrowings under the 2022 Term Loan.

On June 30, 2022, the Company was in compliance with the financial covenants under the 2022 Term Loan.

Pursuant to the terms of the U.S.

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Commercial Paper Program for general corporate purposes, which recently has included fully or partially funding acquisitions, as well as to repay certain outstanding senior notes .

The amount of USCP Notes outstanding as of March 31, 2022 was $933.5, with a weighted average interest rate of 0.95%.

The amount of USCP Notes outstanding as of June 30, 2022 was $923.2, with a weighted average interest rate of 1.98%.

As of December 31, 2021, the amount of USCP Notes outstanding was $795.2, with a weighted average interest rate of 0.29%.

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The maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0.

As of March 31, 2022 and December 31, 2021, there were no ECP Notes outstanding.

As of June 30, 2022 and December 31, 2021, there were no ECP Notes outstanding.

Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time.

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The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future.

As of March 31, 2022, the Company has outstanding senior notes (the “Senior Notes”) as follows:

As of June 30, 2022, the Company has outstanding senior notes (the “Senior Notes”) as follows:

February 2030

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The Company’s Senior Notes impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements.

On March 31, 2022, the Company was in compliance with all requirements under its Senior Notes.

On June 30, 2022, the Company was in compliance with all requirements under its Senior Notes.

Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further information related to the Company’s debt.

On April 27, 2021, the Board authorized a stock repurchase program under which the Company may purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 27, 2024 (the “2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act.

During the three months ended March 31, 2022, the Company repurchased 2.6 million shares of its Common Stock for $204.0 under the 2021 Stock Repurchase Program.

Of the total repurchases made during the first three months of 2022, 0.3 million shares, or $21.0, were retained in Treasury stock at the time of repurchase.

During the three and six months ended June 30, 2022, the Company repurchased 2.7 million and 5.3 million shares of its Common Stock for $186.0 and $389.9, respectively, under the 2021 Stock Repurchase Program.

Of the total repurchases made during the first six months of 2022, 0.3 million shares, or $21.0, were retained in Treasury stock at the time of repurchase.

The remaining 5.0 million shares, or $368.9, have been retired by the Company.

From April 1, 2022 to April 26, 2022, the Company repurchased 0.7 million additional shares of its Common Stock for $51.0 under the 2021 Stock Repurchase Program, and, as of April 27, 2022, the Company has remaining authorization to purchase up to $1,287.1 of its Common Stock under the 2021 Stock Repurchase Program.

During the three months ended June 30, 2021, the Company repurchased 1.7 million shares of its Common Stock for $116.3 under the 2021 Stock Repurchase Program, all the shares of which were retired by the Company.

From July 1, 2022 to July 26, 2022, the Company repurchased 0.7 million additional shares of its Common Stock for $48.0 under the 2021 Stock Repurchase Program, and, as of July 27, 2022, the Company has remaining authorization to purchase up to $1,104.2 of its Common Stock under the 2021 Stock Repurchase Program.

The price and timing of any future purchases under the 2021 Stock Repurchase Program will depend on a number of factors, such as levels of cash generation from operations, the volume of stock options exercised by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Company’s Common Stock.

On April 24, 2018, the Board authorized a stock repurchase program under which the Company could purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act.

During the three months ended March 31, 2021, the Company repurchased 2.4 million shares of its Common Stock for $152.8 under the 2018 Stock Repurchase Program.

Of the total repurchases made during the first three months of 2021, 0.3 million shares, or $19.8, were retained in Treasury stock at the time of repurchase.

The remaining 2.1 million shares, or $133.0,

were retired by the Company.

In April of 2021, the Company repurchased the remaining value of shares of its Common Stock authorized under the 2018 Stock Repurchase Program and, therefore, the 2018 Stock Repurchase Program was terminated.

During the three and six months ended June 30, 2021, the Company repurchased 0.8 million and 3.1 million shares of its Common Stock for $51.0 and $203.8, respectively, under the 2018 Stock Repurchase Program.

As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program, and, therefore, the 2018 Stock Repurchase Program was terminated.

Of the total repurchases made during the first six months of 2021, 0.3 million shares, or $19.8, were retained in Treasury stock at the time of repurchase.

The remaining 2.8 million shares, or $184.0, were retired by the Company.

Contingent upon declaration by the Board, the Company pays a quarterly dividend on shares of its Common Stock.

The following table summarizes the declared quarterly dividends per share as well as the dividends declared and paid for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table summarizes the declared quarterly dividends per share as well as the dividends declared and paid for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

Dividends declared per share

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In March 2020, in response to this transition, the Financial Accounting Standards Board (“FASB”) issued accounting guidance providing certain optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates.

GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be

discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates.

In January 2021, the FASB issued further clarifying guidance surrounding derivatives, as it relates to this transition.

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Acquisitions and Divestitures

In the second quarter of 2022, the Company completed one acquisition for approximately $74.5, net of cash acquired, which has been included in the Harsh Environment Solutions segment.

This acquisition, which was funded through a combination of borrowings under the U.S.

Commercial Paper Program and cash on hand, was not material to the Company’s financial results.

During 2021, the Company completed seven acquisitions for $2,225.4, net of cash acquired, while also completing the divestiture of the Divested MTS business, as defined and discussed below.

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Commercial Paper Program and cash on hand.

from continuing operations in the Consolidated Statements of Cash Flow for the year ended December 31, 2021.

At closing, the Company paid approximately $1,300, net of cash acquired, for 100% of the common stock of MTS, including certain liabilities settled at closing, which was reflected within Net cash used in investing activities from continuing operations in the Consolidated Statements of Cash Flow for the year ended December 31, 2021.

In addition, the Company also assumed MTS’s then-outstanding $350.0 principal amount of senior notes due August 15, 2027, which were repaid and settled, shortly after the closing, for approximately $387.3, which included accrued interest and a make-whole premium incurred as a result of the early extinguishment of the senior notes.

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Throughout this Quarterly Report on Form 10-Q, we refer to MTS (including the MTS T&S business, but excluding the MTS Sensors business) as the “Divested MTS business”.

As a result of the agreement to sell the Divested MTS business to ITW, the Divested MTS business met the “held for sale” criteria at its acquisition date, and the Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations in the Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flow, respectively, as of the MTS acquisition date of April 7, 2021 through December 1, 2021, the date of the sale of the Divested MTS business.

Accordingly, the Company did not assign the Divested MTS business to any of its reportable business segments.

Income from discontinued operations attributable to Amphenol Corporation, net of income taxes, was $21.4 for the year ended December 31, 2021.

As a result of the agreement to sell the Divested MTS business to ITW, the Divested MTS business met the “held for sale” criteria at its acquisition date, and accordingly, the Company did not assign the Divested MTS business to any of its reportable business segments.

The Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations in the Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flow, respectively, as of the MTS acquisition date of April 7, 2021 through June 30, 2021, and ultimately, through December 1, 2021, the date of the sale of the Divested MTS business.

Income from discontinued operations attributable to Amphenol Corporation, net of income taxes, was $2.6 for both the second quarter and first six months of 2021, and $21.4 for the year ended December 31, 2021.

On December 1, 2021, the Company completed the sale of the Divested MTS business for approximately $750, net of cash divested and excluding related transaction fees and expenses.

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On December 1, 2021, the Company completed the acquisition of approximately 97% of the common stock of Halo Technology Limited (“Halo”) for a purchase price of approximately $694, net of cash acquired.

The sellers retained a less than 3% noncontrolling interest in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, as discussed in more detail in Note 5 in the accompanying Condensed Consolidated Financial Statements, as well as Note 1 of the Notes to Consolidated Financial Statements in the 2021 Annual Report.

The sellers retained a noncontrolling interest of less than 3% in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, as discussed in more detail in Note 5 of the accompanying Notes to Condensed Consolidated Financial Statements, as well as Note 1 of the Notes to Consolidated Financial Statements in the 2021 Annual Report.

The acquisition was funded with cash on hand.

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Halo is reported within our Communications Solutions segment.

In the fourth quarter of 2021, the Company incurred $15.0 ($12.7 after-tax, or $0.02 per diluted share) of acquisition-related expenses, comprised primarily of external transaction costs and certain non-cash purchase accounting costs related to the Halo acquisition.

Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements, as well as the 2021 Annual Report, for further discussion of the Company’s acquisitions, as well as its discontinued operations and the completed divestiture of the Divested MTS business in 2021.

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Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes.

The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition,

results of operations or cash flows.

For more information on certain environmental matters, refer to Note 15 of the Notes to Condensed Consolidated Financial Statements.

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Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and period-over-period comparative results, in addition to the reasons noted below.

Non-GAAP financial measures related to operating income, operating margin, net income attributable to Amphenol Corporation, effective tax rate and diluted EPS exclude income and expenses that are not directly related to the Company’s operating performance during the periods presented.

Non-GAAP financial measures related to operating income, operating margin, net income from continuing operations attributable to Amphenol Corporation, effective tax rate and diluted EPS from continuing operations exclude income and expenses that are not directly related to the Company’s operating performance during the periods presented.

Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, and certain discrete tax items including but not limited to (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law.

Non-GAAP financial measures related to net sales exclude the impact of foreign currency exchange rates and acquisitions.

Non-GAAP financial measures and their most directly comparable U.S.

GAAP financial measures presented within this Item 2 are on a continuing operations basis only and exclude any results associated with discontinued operations.

The non-GAAP financial information contained herein is included for supplemental purposes only and should not be considered in isolation, as a substitute for or superior to the related U.S.

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The reconciliations of these non-GAAP financial measures to the most directly comparable U.S.

GAAP financial measures for the three months ended March 31, 2022 and 2021 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 2:

● Adjusted Diluted EPS is defined as diluted earnings per share (as reported in accordance with U.S.

GAAP financial measures for the three and six months ended June 30, 2022 and 2021 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 2:

● Adjusted Diluted EPS is defined as diluted earnings per share from continuing operations (as reported in accordance with U.S.

GAAP), excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the periods presented.

Adjusted Diluted EPS is calculated as Adjusted Net Income attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Condensed Consolidated Statements of Income.

● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Condensed Consolidated Statements of Income, expressed as a percentage of Income before income taxes, as reported in the Condensed Consolidated Statements of Income, each excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the periods presented.

● Adjusted Net Income attributable to Amphenol Corporation is defined as Net income attributable to Amphenol Corporation, as reported in the Condensed Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the periods presented.

Adjusted Diluted EPS is calculated as Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Condensed Consolidated Statements of Income.

● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Condensed Consolidated Statements of Income, expressed as a percentage of Income from continuing operations before income taxes, as reported in the Condensed Consolidated Statements of Income, each excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the periods presented.

● Adjusted Net Income from continuing operations attributable to Amphenol Corporation is defined as Net income from continuing operations attributable to Amphenol Corporation, as reported in the Condensed Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the periods presented.

● Adjusted Operating Income is defined as Operating income, as reported in the Condensed Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company’s operating performance during the periods presented.

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As such, management evaluates the Company’s sales performance based on actual sales growth in U.S.

dollars, as well as Organic Net Sales Growth (defined

below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.

● Free Cash Flow is defined as (i) Net cash provided by operating activities (“Operating Cash Flow” - as reported in accordance with U.S.

dollars, as well as Organic Net Sales Growth (defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.

● Free Cash Flow is defined as (i) Net cash provided by operating activities from continuing operations (“Operating Cash Flow” - as reported in accordance with U.S.

GAAP) less (ii) capital expenditures (as reported in accordance with U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis